diff --git a/docs/src/test-api/class-fullconfig.md b/docs/src/test-api/class-fullconfig.md
index 81e102436c..923c9fa858 100644
--- a/docs/src/test-api/class-fullconfig.md
+++ b/docs/src/test-api/class-fullconfig.md
@@ -118,6 +118,12 @@ See [`property: TestConfig.shard`].
 
 See [`property: TestConfig.updateSnapshots`].
 
+## property: FullConfig.updateSourceMethod
+* since: v1.50
+- type: <[UpdateSourceMethod]<"overwrite"|"3way"|"patch">>
+
+See [`property: TestConfig.updateSourceMethod`].
+
 ## property: FullConfig.version
 * since: v1.20
 - type: <[string]>
diff --git a/docs/src/test-api/class-testconfig.md b/docs/src/test-api/class-testconfig.md
index d9641128bc..37b9ca5f27 100644
--- a/docs/src/test-api/class-testconfig.md
+++ b/docs/src/test-api/class-testconfig.md
@@ -590,6 +590,15 @@ export default defineConfig({
 });
 ```
 
+## property: TestConfig.updateSourceMethod
+* since: v1.50
+- type: ?<[UpdateSourceMethod]<"overwrite"|"3way"|"patch">>
+
+Defines how to update the source code snapshots.
+* `'overwrite'` - Overwrite the source code snapshot with the actual result.
+* `'3way'` - Use a three-way merge to update the source code snapshot.
+* `'patch'` - Use a patch to update the source code snapshot. This is the default.
+
 ## property: TestConfig.use
 * since: v1.10
 - type: ?<[TestOptions]>
diff --git a/packages/playwright/src/common/config.ts b/packages/playwright/src/common/config.ts
index 031a5215f2..0e8babce10 100644
--- a/packages/playwright/src/common/config.ts
+++ b/packages/playwright/src/common/config.ts
@@ -97,6 +97,7 @@ export class FullConfigInternal {
       projects: [],
       shard: takeFirst(configCLIOverrides.shard, userConfig.shard, null),
       updateSnapshots: takeFirst(configCLIOverrides.updateSnapshots, userConfig.updateSnapshots, 'missing'),
+      updateSourceMethod: takeFirst(configCLIOverrides.updateSourceMethod, userConfig.updateSourceMethod, 'patch'),
       version: require('../../package.json').version,
       workers: 0,
       webServer: null,
diff --git a/packages/playwright/src/common/ipc.ts b/packages/playwright/src/common/ipc.ts
index 2f08a87650..ad0e91f5c3 100644
--- a/packages/playwright/src/common/ipc.ts
+++ b/packages/playwright/src/common/ipc.ts
@@ -39,6 +39,7 @@ export type ConfigCLIOverrides = {
   tsconfig?: string;
   ignoreSnapshots?: boolean;
   updateSnapshots?: 'all'|'changed'|'missing'|'none';
+  updateSourceMethod?: 'overwrite'|'patch'|'3way';
   workers?: number | string;
   projects?: { name: string, use?: any }[],
   use?: any;
diff --git a/packages/playwright/src/isomorphic/teleReceiver.ts b/packages/playwright/src/isomorphic/teleReceiver.ts
index 0c4408096d..f96547d427 100644
--- a/packages/playwright/src/isomorphic/teleReceiver.ts
+++ b/packages/playwright/src/isomorphic/teleReceiver.ts
@@ -594,6 +594,7 @@ export const baseFullConfig: reporterTypes.FullConfig = {
   quiet: false,
   shard: null,
   updateSnapshots: 'missing',
+  updateSourceMethod: 'patch',
   version: '',
   workers: 0,
   webServer: null,
diff --git a/packages/playwright/src/program.ts b/packages/playwright/src/program.ts
index a827483bbd..ea0a48fe6a 100644
--- a/packages/playwright/src/program.ts
+++ b/packages/playwright/src/program.ts
@@ -303,6 +303,7 @@ function overridesFromOptions(options: { [key: string]: any }): ConfigCLIOverrid
     tsconfig: options.tsconfig ? path.resolve(process.cwd(), options.tsconfig) : undefined,
     ignoreSnapshots: options.ignoreSnapshots ? !!options.ignoreSnapshots : undefined,
     updateSnapshots,
+    updateSourceMethod: options.updateSourceMethod || 'patch',
     workers: options.workers,
   };
 
@@ -385,6 +386,7 @@ const testOptions: [string, string][] = [
   ['--ui-host <host>', 'Host to serve UI on; specifying this option opens UI in a browser tab'],
   ['--ui-port <port>', 'Port to serve UI on, 0 for any free port; specifying this option opens UI in a browser tab'],
   ['-u, --update-snapshots [mode]', `Update snapshots with actual results. Possible values are 'all', 'changed', 'missing' and 'none'. Not passing defaults to 'missing', passing without value defaults to 'changed'`],
+  ['--update-source-method <method>', `Chooses the way source is updated. Possible values are 'overwrite', '3way' and 'patch'. Defaults to 'patch'`],
   ['-j, --workers <workers>', `Number of concurrent workers or percentage of logical CPU cores, use 1 to run in a single worker (default: 50%)`],
   ['-x', `Stop after the first failure`],
 ];
diff --git a/packages/playwright/src/runner/rebase.ts b/packages/playwright/src/runner/rebase.ts
index e088b82742..de18df465b 100644
--- a/packages/playwright/src/runner/rebase.ts
+++ b/packages/playwright/src/runner/rebase.ts
@@ -56,6 +56,8 @@ export async function applySuggestedRebaselines(config: FullConfigInternal, repo
   const files: string[] = [];
   const gitCache = new Map<string, string | null>();
 
+  const patchFile = path.join(project.project.outputDir, 'rebaselines.patch');
+
   for (const fileName of [...suggestedRebaselines.keys()].sort()) {
     const source = await fs.promises.readFile(fileName, 'utf8');
     const lines = source.split('\n');
@@ -97,24 +99,27 @@ export async function applySuggestedRebaselines(config: FullConfigInternal, repo
     for (const range of ranges)
       result = result.substring(0, range.start) + range.newText + result.substring(range.end);
 
-    if (process.env.PWTEST_UPDATE_SNAPSHOTS === 'overwrite') {
+    const relativeName = path.relative(process.cwd(), fileName);
+    files.push(relativeName);
+
+    if (config.config.updateSourceMethod === 'overwrite') {
       await fs.promises.writeFile(fileName, result);
-    } else if (process.env.PWTEST_UPDATE_SNAPSHOTS === 'manual') {
+    } else if (config.config.updateSourceMethod === '3way') {
       await fs.promises.writeFile(fileName, applyPatchWithConflictMarkers(source, result));
     } else {
       const gitFolder = findGitRoot(path.dirname(fileName), gitCache);
-      const relativeName = path.relative(gitFolder || process.cwd(), fileName);
-      files.push(relativeName);
-      patches.push(createPatch(relativeName, source, result));
-
-      const patchFile = path.join(project.project.outputDir, 'rebaselines.patch');
-      await fs.promises.mkdir(path.dirname(patchFile), { recursive: true });
-      await fs.promises.writeFile(patchFile, patches.join('\n'));
-
-      const fileList = files.map(file => '  ' + colors.dim(file)).join('\n');
-      reporter.onStdErr(`\nNew baselines created for:\n\n${fileList}\n\n  ` + colors.cyan('git apply ' + path.relative(process.cwd(), patchFile)) + '\n');
+      const relativeToGit = path.relative(gitFolder || process.cwd(), fileName);
+      patches.push(createPatch(relativeToGit, source, result));
     }
   }
+
+  const fileList = files.map(file => '  ' + colors.dim(file)).join('\n');
+  reporter.onStdErr(`\nNew baselines created for:\n\n${fileList}\n`);
+  if (config.config.updateSourceMethod === 'patch') {
+    await fs.promises.mkdir(path.dirname(patchFile), { recursive: true });
+    await fs.promises.writeFile(patchFile, patches.join('\n'));
+    reporter.onStdErr(`\n  ` + colors.cyan('git apply ' + path.relative(process.cwd(), patchFile)) + '\n');
+  }
 }
 
 function createPatch(fileName: string, before: string, after: string) {
diff --git a/packages/playwright/types/test.d.ts b/packages/playwright/types/test.d.ts
index c80329ca8a..8d05bdafef 100644
--- a/packages/playwright/types/test.d.ts
+++ b/packages/playwright/types/test.d.ts
@@ -1688,6 +1688,14 @@ interface TestConfig<TestArgs = {}, WorkerArgs = {}> {
    */
   updateSnapshots?: "all"|"changed"|"missing"|"none";
 
+  /**
+   * Defines how to update the source code snapshots.
+   * - `'overwrite'` - Overwrite the source code snapshot with the actual result.
+   * - `'3way'` - Use a three-way merge to update the source code snapshot.
+   * - `'patch'` - Use a patch to update the source code snapshot. This is the default.
+   */
+  updateSourceMethod?: "overwrite"|"3way"|"patch";
+
   /**
    * The maximum number of concurrent worker processes to use for parallelizing tests. Can also be set as percentage of
    * logical CPU cores, e.g. `'50%'.`
@@ -1837,6 +1845,12 @@ export interface FullConfig<TestArgs = {}, WorkerArgs = {}> {
    */
   updateSnapshots: "all"|"changed"|"missing"|"none";
 
+  /**
+   * See
+   * [testConfig.updateSourceMethod](https://playwright.dev/docs/api/class-testconfig#test-config-update-source-method).
+   */
+  updateSourceMethod: "overwrite"|"3way"|"patch";
+
   /**
    * Playwright version.
    */
diff --git a/tests/playwright-test/update-aria-snapshot.spec.ts b/tests/playwright-test/update-aria-snapshot.spec.ts
index 3b07e8b93e..6a3d10eb43 100644
--- a/tests/playwright-test/update-aria-snapshot.spec.ts
+++ b/tests/playwright-test/update-aria-snapshot.spec.ts
@@ -490,3 +490,82 @@ test.describe('update-snapshots all', () => {
     expect(result2.exitCode).toBe(0);
   });
 });
+
+test.describe('update-source-method', () => {
+  test('should overwrite source', async ({ runInlineTest }, testInfo) => {
+    const result = await runInlineTest({
+      '.git/marker': '',
+      'a.spec.ts': `
+        import { test, expect } from '@playwright/test';
+        test('test', async ({ page }) => {
+          await page.setContent(\`<h1>hello</h1>\`);
+          await expect(page.locator('body')).toMatchAriaSnapshot(\`
+            - heading "world"
+          \`);
+        });
+      `
+    }, { 'update-snapshots': 'all', 'update-source-method': 'overwrite' });
+
+    expect(result.exitCode).toBe(0);
+    const patchPath = testInfo.outputPath('test-results/rebaselines.patch');
+    expect(fs.existsSync(patchPath)).toBeFalsy();
+
+    const data = fs.readFileSync(testInfo.outputPath('a.spec.ts'), 'utf-8');
+    expect(data).toBe(`
+        import { test, expect } from '@playwright/test';
+        test('test', async ({ page }) => {
+          await page.setContent(\`<h1>hello</h1>\`);
+          await expect(page.locator('body')).toMatchAriaSnapshot(\`
+            - heading "hello" [level=1]
+          \`);
+        });
+      `);
+
+    expect(stripAnsi(result.output).replace(/\\/g, '/')).toContain(`New baselines created for:
+
+  a.spec.ts
+`);
+
+    const result2 = await runInlineTest({});
+    expect(result2.exitCode).toBe(0);
+  });
+
+  test('should 3way source', async ({ runInlineTest }, testInfo) => {
+    const result = await runInlineTest({
+      '.git/marker': '',
+      'a.spec.ts': `
+        import { test, expect } from '@playwright/test';
+        test('test', async ({ page }) => {
+          await page.setContent(\`<h1>hello</h1>\`);
+          await expect(page.locator('body')).toMatchAriaSnapshot(\`
+            - heading "world"
+          \`);
+        });
+      `
+    }, { 'update-snapshots': 'all', 'update-source-method': '3way' });
+
+    expect(result.exitCode).toBe(0);
+    const patchPath = testInfo.outputPath('test-results/rebaselines.patch');
+    expect(fs.existsSync(patchPath)).toBeFalsy();
+
+    const data = fs.readFileSync(testInfo.outputPath('a.spec.ts'), 'utf-8');
+    expect(data).toBe(`
+        import { test, expect } from '@playwright/test';
+        test('test', async ({ page }) => {
+          await page.setContent(\`<h1>hello</h1>\`);
+          await expect(page.locator('body')).toMatchAriaSnapshot(\`
+\<<<<<<< HEAD
+            - heading "world"
+=======
+            - heading "hello" [level=1]
+>>>>>>> SNAPSHOT
+          \`);
+        });
+      `);
+
+    expect(stripAnsi(result.output).replace(/\\/g, '/')).toContain(`New baselines created for:
+
+  a.spec.ts
+`);
+  });
+});